Business Overview and History
Gannett Co., Inc. (GCI) is a diversified media company with a robust presence at both the national and local levels, dedicated to empowering and enriching communities. The company's journey has been marked by strategic pivots and a relentless pursuit of innovation, as it navigates the rapidly evolving media landscape.
Gannett was founded in 1906 as the Gannett Newspaper Company, with its first publication being the Elmira Gazette in New York. Over the following decades, the company expanded through a series of strategic acquisitions, solidifying its position as a leading media conglomerate. In 1982, Gannett acquired the renowned newspaper USA TODAY, which has since become the company's flagship national publication and helped transform Gannett from a regional newspaper publisher to a major media conglomerate.
Throughout the 1990s and 2000s, Gannett continued its growth trajectory, acquiring numerous local newspaper and television station assets across the country. However, the company faced significant challenges in the 2010s as the newspaper industry grappled with the shift towards digital media. In response, Gannett began to diversify its portfolio, investing heavily in digital platforms and solutions.
In 2019, Gannett merged with New Media Investment Group, significantly increasing its digital footprint but also incurring substantial debt. This merger was met with skepticism by some industry analysts who questioned whether the combined company could successfully navigate the transition to digital. In the years following the merger, Gannett took steps to stabilize its business, including divesting non-core assets, consolidating operations, and implementing cost-cutting measures. The company also worked to expand its digital offerings and build up its network of local news properties.
These efforts were complicated by the COVID-19 pandemic, which exacerbated headwinds facing the media industry. Despite the challenges, Gannett has remained a prominent player in the media landscape, operating a diverse portfolio of news, information, and marketing solutions brands. The company continues to adapt to the evolving media environment, leveraging its national reach and local market expertise to serve its audience and advertisers.
Today, Gannett's portfolio includes the USA TODAY NETWORK, comprising the national USA TODAY brand and a network of over 220 local media organizations across the United States. Additionally, the company's international operations are conducted through its wholly-owned subsidiary, Newsquest, which operates in the United Kingdom. Gannett's digital marketing solutions brand, LocaliQ, leverages innovation and software to enable small and medium-sized businesses to grow.
Financial Overview
Gannett's financial performance has been characterized by a gradual shift towards a more digitally-oriented business model. In the fiscal year ended December 31, 2023, the company reported total revenue of $2.66 billion, with digital revenues accounting for 45.8% of the total. This represents a significant increase from the 2020 fiscal year, when digital revenues made up only 37.5% of the total.
The company's net income for the 2023 fiscal year was a loss of $27.8 million, down from a loss of $78.0 million in the prior year. However, Gannett's adjusted EBITDA, a key metric that excludes the impact of certain non-recurring items, has shown more promising trends, increasing from $213.5 million in 2022 to $268.2 million in 2023.
For the most recent quarter (Q3 2024), Gannett reported revenue of $612.44 million, a decrease of 6.2% year-over-year. This decline was mainly attributed to the sale and unwind of non-strategic businesses, partially offset by growth in digital advertising, digital-only subscription, and digital other revenue categories. The company's net loss for the quarter was $19.65 million, compared to a net loss of $2.57 million in the prior year period. Despite the revenue decrease, adjusted EBITDA for Q3 2024 increased 5.6% year-over-year to $62.9 million.
Gannett's operating cash flow (OCF) for Q3 2024 was $33.70 million, while free cash flow (FCF) was $19.80 million. The company generated approximately $20 million of free cash flow in Q3 2024, representing a significant increase of 168% compared to the prior year.
Segment Performance
Gannett operates through three main reportable segments:
1. Domestic Gannett Media Segment: This segment comprises Gannett's portfolio of domestic local, regional, and national newspaper publishers. It includes digital revenues from advertising, digital marketing services, digital distribution of publications, and content syndication, as well as print and commercial revenues from advertising, circulation, and commercial printing and distribution arrangements.
2. Newsquest Segment: This segment consists of Gannett's portfolio of international newspaper publishers, primarily in the United Kingdom. It includes similar revenue streams to the Domestic Gannett Media segment but for international markets.
3. Digital Marketing Solutions (DMS) Segment: This segment operates under the LocaliQ brand and provides digital marketing services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions.
In Q3 2024, digital revenues, which include revenues from the DMS segment as well as digital-related revenues from the Domestic Gannett Media and Newsquest segments, were $277.39 million, an increase of 5.00% compared to the prior year period. Digital revenues accounted for 45.3% of total revenues in Q3 2024. Print and commercial revenues were $335.05 million, a decrease of 14.00% compared to the prior year period.
Geographic Performance
Gannett operates primarily in the United States through its Domestic Gannett Media segment and internationally in the United Kingdom through its Newsquest segment. For Q3 2024, international revenues (primarily from Newsquest) comprised 11.4% of total revenues.
Liquidity
In terms of liquidity, Gannett ended the 2023 fiscal year with $100.2 million in cash and cash equivalents, and a net debt position of $944.4 million. As of September 30, 2024, the company's cash and cash equivalents stood at $101.8 million. The company's free cash flow, a measure of its ability to generate cash from operations, was $56.5 million in 2023, up from a negative $4.6 million in the prior year.
Gannett's debt-to-equity ratio was 5.03 as of September 30, 2024. The company has a $900 million first lien term loan facility, with $49.6 million available for borrowing under the delayed draw term loan facility as of October 15, 2024. The current ratio and quick ratio as of September 30, 2024, were 0.79 and 0.74, respectively.
Navigating the Digital Transformation
Gannett's strategic priorities have been centered on maximizing the monetization of its audience through the growth of its diverse and highly recurring digital businesses. The company has made significant strides in this regard, with three out of its four digital revenue categories experiencing strong year-over-year growth in the third quarter of 2024.
One of the key drivers of Gannett's digital success has been the performance of its digital-only subscription business. In the third quarter of 2024, this segment generated $50.1 million in revenue, representing a 25% year-over-year increase. The company has also seen a steady rise in its digital-only paid subscriptions, as well as a 20% improvement in digital-only average revenue per user (ARPU), which reached $8.16 in Q3 2024.
Additionally, Gannett's digital advertising revenues have shown promising trends, growing by 4.9% year-over-year in the third quarter of 2024. This growth has been fueled by increases in page views and programmatic advertising revenue, underscoring the company's ability to effectively monetize its substantial digital audience.
While Gannett's digital marketing solutions (DMS) segment experienced a slight revenue decline in the third quarter, the company has outlined a series of actions to address the headwinds in this business, including verticalization, new incentive programs, and the launch of its AI-powered solution, Dash. These initiatives are expected to drive improved performance and a return to growth in the DMS segment.
Risks and Challenges
Gannett, like many media companies, faces the ongoing challenge of navigating the rapidly evolving digital landscape. The company's reliance on third-party platforms, such as search engines and social media, for audience visibility and engagement presents inherent risks, as these platforms can significantly impact the company's ability to reach and monetize its audience.
Additionally, Gannett's significant debt burden, with a net debt position of $944.4 million as of the end of 2023, could constrain the company's financial flexibility and limit its ability to invest in strategic initiatives. The company's ability to continue deleveraging and maintaining a healthy balance sheet will be crucial for its long-term success.
Pandemic-related disruptions and macroeconomic uncertainties have also posed challenges for Gannett, as fluctuations in advertising spend and consumer behavior have impacted the company's financial performance. The company's ability to navigate these external factors and adapt its business model accordingly will be a key determinant of its future growth.
Outlook and Conclusion
Despite the challenges faced by the media industry, Gannett remains cautiously optimistic about its future prospects. The company's focus on digital transformation, audience engagement, and diversified revenue streams has positioned it for potential long-term success.
In its most recent guidance, Gannett updated its expectation for full-year 2024 total digital revenue growth to 6-7% to reflect current trends in its Digital Marketing Solutions (DMS) business. The company also updated its 2024 free cash flow guidance to reflect the impact of its Q4 2024 debt refinancing. Gannett reaffirmed its previous mid-term guidance, which calls for total revenue growth in 2025, consistent with their previous expectations. The company expressed confidence in achieving the revenue inflection point in the first half of 2025, driven by continued improvement in digital advertising, digital-only subscriptions, and the return of the DMS business to growth.
As Gannett navigates the dynamic media landscape, its ability to adapt, innovate, and capitalize on emerging opportunities will be crucial in driving sustainable growth and creating value for its shareholders. With a strong national brand, a network of trusted local media properties, and a diversified digital ecosystem, Gannett is well-positioned to cement its position as a leading media and marketing solutions provider.